Bank of America Preview: ‘Expenses, Expenses, Expenses’

That scalpel Bank of America is wielding continues to draw investors’ eyes.

Associated Press

Nearly two years after the then-nation’s biggest bank launched an aggressive cost-cutting initiative dubbed Project New BAC, the cost line remains in focus for investors. Indeed, analysts say it will be the biggest focal point for investors tomorrow when BofA reports its first quarter.

“Expenses, expenses, expenses,” KBW analyst wrote. “As the shares approach and hover around [tangible-book value], we believe the next leg up will be predicated on whether or not management can bring down the expense base of the company in a material manner sooner rather than later.”

The bank has already been cutting costs — for all of 2012, its non-interest expensive was down 10% from 2011 — so it isn’t that analysts are concerned about too much spending. But the way for the bank to drive earnings higher, and therefore shares, lies largely in removing costs that subtract from the bottom line. The historically-low interest rates and lackluster lending shown by other major banks this reporting season will make it even more important for BofA right now.

Bernstein analysts pointed specifically to spending at Legacy Assets & Servicing, BofA’s version of a “bad bank,” saying the company has telegraphed lower costs there. That would relieve investors who quarter after quarter have seen the bad mortgage portfolio create a mess of legal and other charges.

In total, analysts polled by Thomson Reuters expect the bank to report earnings of 22 cents a share and revenue of $23.4 billion. Shares rose 2.5% on Tuesday to $12.28 and are now up 6% this year.